Reinvestigation of Oil Price-Stock Market Nexus in Iran: A SVAR Approach

Document Type: Research Paper


1 M.A in Economics, Islamic Azad University, Central Tehran Branch, Iran

2 Assistant Professor, Islamic Azad University, Central Tehran Branch, Iran


In this paper we investigate the effect of oil price shocks on stock market index in Iran, by using of a structural VAR (SVAR) approach. We used four variables in the model namely Kilian index, global oil supply, real oil price and real stock market index. The data are monthly and spanning the period 1997M10-2014M12. We identify the effect of four different shocks on stock market including oil supply shock, aggregate demand shock, other oil-specific shock and other stock-specific shock. Empirical evidences from impulse response functions (IRFs) indicate that oil supply shock is not significant, and the impact of other three shocks persists for about 3, 6 and 2 months respectively. Variance decomposition (VD) of stock market index indicates “other stock-specific shock” is the most important explainer of its variations. These findings are consistent with the findings of other oil-exporting countries including Saudi Arabia, Kuwait, Mexico, Norway, Russia, Venezuela and Canada except the effect of oil supply shock in variance decomposition of stock market index.


1. Abbasinejad H.,Ebrahimi S. (2014)The Impacts of Oil Shocks on Tehran Stock Exchange’s Return,journal of economic research and policies 21,83-108.
2. Basher, S., Sadorsky, P. (2006) Oil price risk and emerging stockmarkets. Glob. Financ. J. 17, 224–251.
3. Basher, S. A., Haug, A.A., Sadorsky, P. (2012) Oil prices, exchange rates and emerging stock markets. Energy Economics 34, 227–240.
4. Baumeister, C. and L. Kilian (2012), ‘Real- time analysis of oil price risks using forecast scenarios’, mimeo, University of Michigan.
5. Broadstock D.C, Filis ,G.(2014) Oil price shocks and stock market returns: New evidence from the United States and China, Int. Fin. Markets, Inst. and Money 33 , 417–433
6. Chen, N. F., Roll, R., & Ross, S. A. (1986). Economic forces and the stock market. Journal of Business, 59, 383–403.
7. Hamilton, J.D. (1983) Oil and macro-economy since World War II. Journal of Political Economy, 91, 228–248.
8. Hosseininasab E.,et al (2011) Assesing The Effect Of Oil Price Shocks On Tehran Stock Exchange Returns: using Wavelet Decomposition and Markov Switching, quarterly energy economics review 29,30-60.

9. International Energy Agency, (2008) World Energy Outlook
10. Jones, C.M., Kaul, G., (1996) Oil and the stock market. J. Financ. 51, 463–491.
11. Jung, H., Park C. (2011) Stock market reaction to oil price shocks: a comparison between an oil-exporting economy and an oil-importing economy. Journal of Economic Theory and Econometrics 22, 1–29.
12. Kilian, L., Park, C., (2009) The impact of oil price shocks on the US stock market. Int. Econ. Rev. 50 , 1267–1287.
13. Lee, B.J., Yang, C.H., Huang, B.H., (2012) Oil price movements and stock market revisited: a case of sector stock price indexes in the G7 countries. Energy Economics 34, 1284–1300.
14. Monjazeb M., and Gohari H.H.,(2013) Impact of Oil Exports Income on Tehran Stock Exchange Dividend and Price Index (TEDPIX) Model Selection, World Applied Sciences Journal 22 , 819-823.
15. Mohanty S.K.,et al(2011) Oil price movements and stock market returns: Evidence from Gulf Cooperation Council (GCC) countries, Global Finance Journal 22,42–55.
16. Mu, X., Ye, H., (2011) Understanding the crude oil price: how important is the China factor? The Energy Journal 32, 69–92.
17. Park, J., Ratti, R., (2008) Oil price shocks and stock markets in the US and 13 European countries. Energy Econ. 30, 2587–2608.
18. Papapetrou, E., (2001) Oil price shocks, stock market, economic activity and employment in Greece. Energy Economics 23, 511–532.
19. Rotemberg J., Woodford, M., (1996) Imperfect competition and the effects of energy price increases on economic activity. Journal of Money, Credit and Banking 28, 549–577.
20. Sadorsky, P. (1999) Oil price shocks and stock market activity. Energy Economics 21, 449–469
21. Salisu A.A, Oloko F.T. (2015) Modeling oil price–US stock nexus: A VARMA–BEKK–AGARCH approach, Energy Economics 50, 1–12.
22. Scholtens, B., Yurtsever, C. (2012) Oil price shocks and European industries. Energy Econ. 34, 1187–1195.
23. Waggoner, D.F. and T. Zha (1999), ‘Conditional forecasts in dynamic multivariate models’, Review of Economics and Statistics, 81, 639–51.
24. Wang Y., et al (2013) Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries, Journal of Comparative Economics 41,1220–1239.